Roth Conversion/Recharacterization in different years?
Can I do a Roth conversion in 2008 and then do a recharacterization of part of the conversion in 2009?
TurboTax will not have their AMT tables until mid-January and I want to be able to convert as much as possible without moving into the 25% tax bracket (actually, with my AMT this year, my tax rates jump from zero to 30% almost in one step).
I would like to convert a larger amount in 2008 and then re-characterize in 2009 to the optimal amount when the TurboTax tables are available.
Thanks.
Permalink Submitted by Alan Spross on Sun, 2008-12-28 23:15
Yes, you have until the extended due date to recharacterize all or any part of a 2008 conversion.
Another way to do this if you are still have a rollover available is to distribute an amount from the TIRA prior to year end. You then have 60 days to complete a rollover under which the optimum amount goes to the Roth IRA and the rest returned to the TIRA. This eliminates the need to recharacterize, but of course exhausts your one 12 month rollover.
Permalink Submitted by James Mitchell on Sun, 2008-12-28 23:25
Please, what is the extended due date?
My IRAs are Rollovers but were rolled over 10 years ago. I am not currently adding to my IRAs… only converting as much as I can afford to each year.
Many thanks!
Permalink Submitted by Alan Spross on Sun, 2008-12-28 23:36
The extended due date is October 15th of the year following the year the conversion is done. To qualify for the extended due date, you must either file your tax return by April 15th, OR file an extension by April 15th. If you fail to do either of those things, then the recharacterization must be done by April 15th.
In converting, generally you should avoid paying taxes at a higher rate than you expect to owe in retirement, even if you can afford those taxes. Of course, your tax rate in retirement is at best an educated guess about both your own future wealth as well as the trend in tax rates including that of the state you will retire in.
Permalink Submitted by James Mitchell on Sun, 2008-12-28 23:49
I have been retired for 10 years and have yet to touch my IRAs. Sadly, I did not read Ed Slott’s books until recently so failed to take advantage of many of my conversion opportunities.
I have now opted out of Social Security (paid back 4 years of payments). I did this to take advantage of the “Social Security” Annuity option and to be able to convert more TIRA to RIRA without paying taxes on SS.
I am carefully calculating the maximum amount of Roth conversion I can do each year and still stay under the 25% tax bracket.
This year is “strange” because I am using my SS buyback as a FIT deduction; this is triggering AMT big-time and TurboTax is giving me strange results (example, no ramp-up in tax due as I add to my conversion).
Based on your information, I’ll now convert about 30K more than I currently understand to be my “limit” and I’ll re-characterize when TurboTax has all their tables complete.
Kind regards
Permalink Submitted by Bruce Steiner on Mon, 2008-12-29 02:15
Would the result be better if you recalculated the prior years’ taxes per Section 1341?
Permalink Submitted by James Mitchell on Mon, 2008-12-29 02:31
Not in my case. In fact, not by a mile (note that I’m an engineer and not a CPA…)! I only had two years where I paid tax on my SS and those were not much.
I am very interested in whether many forum members think there will be any changes of substance in the final AMT formulations for 2008. Should I start a different thread on this or does one exist I can be directed to?
Again, many thanks.